Chapter 7, Problem 14Q

To determine

Whether the following statement is true, false, or uncertain, “ if most participants in the stock market do not follow what is happening to the monetary aggregates, prices of common stocks will not fully reflect information about them.”

Introduction:

Monetary policy is used by the central bank to control the liquidity of money in the economy to bring it to a stable condition. This is done through management of interest rate, marginal requirements, and the money supply. Objectives of a monetary policy are high employment and output stability, economic growth, stability of financial markets, interest rate stability and stability in foreign exchange markets.